What is Ethical Fundraising?
For nonprofit organizations, fundraising activities are essential for sustainability. More than just a means to raise funds for your club, it’s also a way to promote your message and charitable intentions.
That said, ethical fundraising brings another level of accountability to the nonprofit’s fundraising process. Aside from complying with legal requirements, ethical fundraising entails adhering to moral standards — such as being completely honest about the organization’s financial data and fundraising practices.
Why Are Ethics Important for Nonprofit Organizations?
Nonprofit organizations are primarily driven by the cause and values they represent. Because of this, you must ensure that your fundraising practices represent your values at all times.
Through ethical fundraising you also can:
Protect and enhance your organization’s reputation – You would be able to establish yourself as a trustworthy organization, and donors would be more confident in supporting your fundraisers.
Build better donor relationships – Aside from building a solid relationship with sponsors, it will be easier for your organization to retain these donors for the long term. When you proactively provide information on how funds are being spent, it will be more likely for them to donate again and give more.
Save on expenses – Ethical fundraising practices ensure that you reach out to people who want to engage with you and are therefore more likely to respond to your messages. You may be reaching out to fewer people or sending communication materials less frequently, but this can also be a cost-effective strategy.
The Do’s and Don’ts of Ethical Fundraising
The organization’s staff, volunteers, and especially its leadership, should all be aware of these ethical fundraising practices:
Adherence to State Laws
Most states enforce laws to regulate the solicitation of funds by a charitable or nonprofit organization. Generally, these laws require you to register with a certain agency before soliciting donations from the citizens of their state.
Therefore, you have to make sure that you abide by the registration and exemption requirements of the state you are operating in. In addition, certain states also require you to register and file quarterly financial statements if you are holding assets subject to a charitable trust.
To determine whether you need to register (for solicitation of contributions or for holding assets subject to charitable trust), you can refer to the website of the National Association of State Charity Officials.
Transparency and Accountability to Donors
The following are examples of ethical practices that show the transparency of your organization:
Public disclosure of required documents
Providing timely reports to stakeholders (these may include foundations, sponsors, members, and government funding sources)
Publishing a donors list on your website
Sending timely acknowledgments of the donations
Observing restrictions on donors’ gifts
Nonprofits should also know the proper reporting of costs and must avoid misstating fundraising expenses. Keep in mind that the IRS requires tax-exempt organizations to disclose the cost of fundraising activities in their annual return (IRS Form 990).
It’s also best that your organization adopts the Donors’ Bill of Rights to help you address relevant contribution concerns. This is especially for donors who request anonymity or are concerned that their contact information will be sold to other nonprofits.
Acknowledgment of Donations
For certain gifts (especially those of significant value), you are required by the IRS to send a written acknowledgment of receipt to the donor.
Nevertheless, it’s important to show your appreciation to all donors, regardless of the classification of their donation. While acknowledgment gifts are a common practice, a simple thank-you note could also be appropriate.
Respecting Donor Requests
When conducting fundraisers, make sure that you educate your staff and board members beforehand about the importance of honoring donors’ requests. Donors may request that their contribution be used for a particular purpose (also known as a restricted gift), or they may ask not to be recognized for their donation.
Staff members should also be knowledgeable on other gift restrictions, and what kinds of items your organization accepts. For example, your organization may be asking for sports equipment contributions, but for safety reasons, has decided not to accept a particular brand or type.
In all these cases, your team should be able to politely and effectively set expectations for your donors and follow through with any promises made.
Not Appropriate: Paying Fundraiser Commission
According to the Code of Ethical Standards of the Association of Fundraising Professionals, members shall “not pay finder’s fees, commissions or percentage compensation based on contributions.”
This may be because the payment of commission to a fundraiser could create an incentive to place personal gain and short-term goals over your organization’s objectives.
Ultimately, ethical fundraising requires accurate and honest communication.
It can be simply demonstrated through the proper attribution for the use of an image or video on your website, but it can also require more complex tasks such as the timely and accurate reporting of your organization’s financial standing.
Nonetheless, ethical fundraising helps ensure the credibility and trustworthiness of your nonprofit. It contributes to the success of both the present and future projects of the organization.